Disproving Beliefs About the Economy and Aging

Two years ago, early in her sixth decade, Iris Shiraishi, third from left, decided it was time to start her own Taiko, or Japanese drumming, group.CreditJenn Ackerman for The New York Times

By Christopher Farrell

May 13, 2016

Why is the American economy stuck in low gear?

Among economists, two major culprits get most of the attention. First is anemic productivity growth. Productivity, output per worker hour, has increased at a disappointing average annual rate of 1.3 percent since 2005 compared to the 2.8 percent annual pace recorded in the previous 10 years. The reasons behind the productivity slowdown — especially the economic impact of technological innovations and lower levels of business and public investment — are heavily debated.

But little controversy shadows the second major factor: the demographics of an aging population. The oldest members of the baby boomer generation are filing for Medicare. About 8,000 boomers will celebrate their 65th birthday each day until 2030. Labor force growth is slow in a society with fewer young people and growing numbers of retirees.

To a large extent, of course, demographic forces are inevitable. There isn’t much dispute about the Census Bureau prediction that all baby boomers will be 65 and over in 2029, accounting for more than 20 percent of the total population. The 65 and above age group is projected to become larger than the population 18 and under by 2056.

Compared to forecasting the future pace of productivity growth, demographics are reassuringly predictable. Or are they?

“We observe the world how it is today and make these very simple projections and turn them into a terrible scenario,” said Johannes Koettl, senior economist at the World Bank’s Social Protection and Labor Global Practice. “This approach fails to take into account that the world is changing.”

It is long past time to shed three pernicious myths about the United States economy and aging.

Myth No. 1: Older adults don’t work, so they weigh down the economy.

You have most likely seen variations on the old-age dependency ratio. The ratio compares the number of people ages 15 to 64 (workers) with people 65 and older (retired, not working). It paints the familiar picture of an increasing number of nonworking older adults. The ratio is alarming since it assumes everyone 65 and over isn’t working.

But millions of older Americans are staying employed or looking for work well into the traditional retirement years. There are a variety of reasons: Boomers are well educated and healthier than previous generations. Work is less physically taxing in a service-dominated economy. More older people need an income to supplement slim savings.

Whatever the mix of motivations, the labor force participation rate of men 60 and over is up nearly one-third, to 35 percent today from a low of 26 percent in 1996, according to Barry P. Bosworth and Gary Burtless, economists at the Brookings Institution, and Kan Zhang, a senior research assistant at George Washington University. The participation rate of women shows a parallel increase, climbing to 25 percent from 15 percent.

The World Bank has developed an alternative ratio, the adult dependency ratio, that incorporates working longer. This ratio compares the number of inactive people (not working and not looking for work) with active people (working or looking for work) in the adult population, age 15 and older.

The projections take into account past trends of increased participation of women and older people in the work force until 2030 and assume an additional rise in effective retirement age by 10 years from 2030 to 2060. This ratio is more or less constant until it eventually declines, painting a reassuring forecast compared to the old-age dependency ratio.

Myth No. 2: Older workers are not productive.

You have probably heard variations of this common belief while at work. The research tells a different story. “There is no evidence older workers aren’t as good at their jobs,” said Laura Carstensen, director of the Stanford Center on Longevity.

For example, Axel Börsch-Supan and Matthias Weiss of the Munich Center for the Economics of Aging analyzed data from a German truck assembly plant owned by Mercedes-Benz. Looking at standard error rates at the plant, they found statistically significant evidence of higher error rates for workers under 30 but no evidence of more mistakes as workers age into their 60s.

Productivity improved all the way up to retirement at 65.

“Even in a work environment requiring substantial physical strength,” they concluded regarding productivity at the factory, “its decline with age is compensated by characteristics that appear to increase with age and are hard to measure directly, such as experience and the ability to operate well in a team when tense situations occur, typically when things go wrong and there is little time to fix them.”

For many knowledge-based companies, the rewards to experience and collaboration are even more critical. “The bottom line is that older people do things differently, but they don’t do it worse,” said Mr. Koettl, the World Bank economist. “They have different advantages vis-à-vis young people.”

Iris Shiraishi would most likely agree. For 14 years she was the artistic director of the Taiko ensemble at Mu Performing Arts in Minneapolis, one of the largest Asian-American performing arts organizations in the country. Two years ago, in her early 60s, she decided it was time start her own Taiko, or Japanese drumming, group. She is tapping into two decades of her Taiko experience to take creative risks with her compositions, experimenting with different instrumentations and performance techniques.

The notion that the job market is a zero sum game — more jobs for one group translates into fewer jobs for another group — is deeply ingrained. Economists call the belief that there are only so many jobs in an economy the “lump of labor fallacy.”

But the truth is that growth in the number of jobs for older people tends to run in parallel with gains for younger workers. “There isn’t a fixed number of jobs,” Ms. Carstensen said. “You grow the pie.”

Older workers won’t clog up the promotion pipeline for their younger peers, either. For instance, 58 percent of those age 50 and over who expect to remain in the work force plan to switch careers or employers in the future, according to the latest Working Longer survey by the Associated Press-NORC Center for Public Affairs Research. To stay competitive, more than a quarter of those surveyed recently completed job training or obtained additional education.

Older workers still have a lot to contribute. C. Eugene Steuerle, an economist at the Urban Institute in Washington, captures the underlying dynamic: “If labor supply increases, the nation gets additional work and larger output. More output means more income for workers. More income means more revenue at any given tax rate. With more revenue, government can pay for more spending at the same tax rates, or lower tax rates.”

The bottom line? One way to help get the economy out of its rut would be to embrace policies that encourage older Americans to stay employed and for employers to appreciate their aging work force.

Correction:

An article on Saturday about myths involving the United States economy and the increasing size of its older population misstated the frequency of 65th birthday anniversaries among baby boomers. It is 8,000 a day, not 8,000 a month.

A version of this article appears in print on , on Page B6 of the New York edition with the headline: Disproving Beliefs About the Economy and Aging. Order Reprints | Today’s Paper | Subscribe